Apple reaps $7 billion after finalizing latest bond sale

Apple has completed an anticipated five-part bond sale, raising $7 billion in debt with the help of banks including Goldman Sachs, Merrill Lynch, J.P. Morgan, and Deutsche Bank.

The first part, $350 million, will mature in 2019 with a floating interest rate linked to a three-month LIBOR (London Interbank Offered Rate) plus 14 basis points, according to a U.S. Securities and Exchange Commission filing. The second, worth $1.15 billion, will mature the same year with a fixed 1.1 interest rate.

A $1.25 billion round matures in 2021 with 1.55 percent interest, while the biggest part -- $2.25 billion -- is set to mature in 2026 with 2.45 percent interest. The final $2 billion will only mature in 2046, but with 3.85 percent interest.

Apple has used a number of bond sales to help finance its capital return program for investors, increasing the appeal of shares through dividends and buybacks. The company could theoretically fuel the program through its cash reserves -- now totaling over $231.5 billion -- but most of that money is overseas, and the company has refused to repatriate it unless the U.S. government concedes to a "tax holiday" that will shrink the amount it owes.

Apple is ultimately expecting to reach $250 billion in the capital return program by March 2018, having already paid out over $163 billion.

Those fees and the interest are less than the tax that would be owed by repatriating any overseas cash. What is the alternative to raise more capital?

Not engaging in these ridiculous buybacks in the first place.

I’ve heard a lot of analysts as well as retail investors suggest that share repurchases are nothing more than financial engineering, implying that they do nothing to add value to a company or its stock.

But there's an additional, and I think significant, value of share repurchases and dividend payments that comes from removing unproductive excess cash from the balance sheet. Lets look at Apple, with a $570 billion market cap and about $160 billon of cash and equivalents on the books, net of debt. Therefore, a dollar invested in Apple represents about 78 cents invested in the actual operating business, which is where the profits come from, and about 22 cents invested to buy a bit of that cash pile, earning about 1%. Arguably a less-than-ideal allocation of each invested dollar.

So a smart investor wants that cash removed from the books, which would either reduce the market cap of the company or, if the cash isn't being valued at even 1x its value, which could be argued is the case with Apple, removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.

And a higher earnings multiple means that as earnings grow in the future, the stock will climb faster. Carl Icahn must have had all of these effects in mind - more efficient allocation of investor's dollars, increase in earnings multiple against operating business, and reduction in shares netting an increase in earnings per remaining share - when he approached Tim Cook years ago. Pity he didn't articulate his case better.

Isn't dissent something that enriches our discussions? We need Sog and you (maybe not Gwydion though)

But most of it isn’t dissent. It’s just negativity for the sake of negativity. I had an uncle like that. If you said the sky was blue he would say the sky is red and argue tooth and nail with you to prove you were wrong. So no, saying the opposite just for the sake of orneriness does not “enrich” our discussions. It’s all about stirring people up and is known as trolling. For example, resident troll @cnocbui blathered “Not engaging in these ridiculous buybacks in the first place.” No explanation as to why buybacks are ridiculous, no alternative suggestions on how to raise capital, just a drive-by turd sling to garner a negative response. That’s definitely not “enriching” the discussion.

According to my math the stock is down 13% from a year ago. How did you get 25%

In 2015 (last year) the stock reached $133. So its closer to 20%

When in 2015? Not the 28 or 29 July 2015, which is how you measure "a year ago" when talking about the stock market. Taking the calendar year high from 2015 and the calendar year low for 2016 is some shady shit.

...removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.

Wow. What a wonderful free lunch! Why not just buy up all of it, then?

Couple of additional points you should consider: removing cash does not "...leave the market cap where it is"; if debt is used (as Apple is doing), interest and principal has to be paid on it from pre-tax operating cash flow.

Unfortunately that was one of the aberrations with this forums SW when your internet service gets slow. One or their previous forum services would look for an identical post close together and let you know it's a duplicate.

I am not saying that interest rates being negative is a good thing in the long run, but I should note that you've been crying "the sky is falling, the sky is falling!!!!!" on interest rates for more than a few years now. And to say that Janet Yellen a "dangerous idiot" is an utterly stupid comment. What she actually said -- if you'd read what you linked to -- was that she would not take if off the table if "....the U.S. economy [got] much worse." We're in no danger of something like that except in your wild imagination.

Isn't dissent something that enriches our discussions? We need Sog and you (maybe not Gwydion though)

But most of it isn’t dissent. It’s just negativity for the sake of negativity. ..For example, resident troll @cnocbui blathered “Not engaging in these ridiculous buybacks in the first place.” No explanation as to why buybacks are ridiculous, no alternative suggestions on how to raise capital, just a drive-by turd sling to garner a negative response. That’s definitely not “enriching” the discussion.

FWIW Apple is not raising any capital with the buybacks. It's not treasury stock nor do they get any money for it. It's burned out of existence so to speak.